Australia’s Regulations for Stablecoin Issuers & Payment Providers

Introduction

Australia is currently undergoing a significant structural transformation of its payment system through the Treasury’s Tranche 1a reforms. This shift moves stablecoins away from being viewed solely as a digital asset and integrates them into a modernised regulatory framework where they are generally treated as a core financial product. By regulating these assets as part of the broader payment system, the government aims to balance innovation with financial stability and consumer protection.

For payment service providers and issuers, understanding the regulation of payment service providers is now a critical business necessity. This guide explains the dual regime overseen by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority, focusing on how new financial products and services, such as tokenised stored value facilities, impact your operations. Navigating these changes is essential for any entity providing financial services in respect of stablecoins to ensure they meet the legal requirements of Australia’s evolving financial landscape.

Understanding Stored Value Facilities & The New Regulatory Framework

Defining a Stored Value Facility

Under Australia’s new regulatory framework, a Stored Value Facility (SVF) is a regulated financial product designed to hold a customer’s funds for making future payments.

This modernised concept replaces the outdated and complex definitions of ‘Purchased Payment Facility’ (PPF) and ‘non-cash payment facility’ (NCPF), which were considered unfit for the digital age.

The new SVF definition is technology-neutral, capturing a broad range of products and services.

An arrangement may be classified as an SVF if it meets several key criteria, including:

• Funds are transferred to a provider without an immediate instruction for an onward payment.
• The customer acquires a right to redeem the value stored in the facility.
• The redemption right can be exercised through methods that include making a non-cash funds transfer.

This updated definition is intended to create a simpler, more graduated framework that is better suited to innovation in payment services.

It ensures that products like digital wallets, prepaid cards, and other e-money facilities are regulated consistently based on their function of storing value.

The Tokenised SVF for Stablecoins

The regulatory reforms introduce a specific sub-category for fiat-backed stablecoins, known as a ‘tokenised SVF’.

This classification brings stablecoins used for payments under the umbrella of financial services regulation, treating them as part of the payment system rather than just as a crypto-asset.

A facility is typically considered a tokenised SVF if it meets two specific conditions:

• The right to redeem a fixed amount of money from the facility is attached to a digital token, and only the person who possesses that token can exercise the right.
• The amount that can be redeemed is fixed and denominated in a single currency, such as Australian or US dollars.

A critical legal distinction in this framework is that the regulated financial product is the underlying facility—the tokenised SVF—and not the digital asset or stablecoin itself.

The provider of the facility is the entity offering the regulated product.

This means that while the issuer is subject to licensing and conduct rules, the subsequent peer-to-peer transfer of the stablecoin on a secondary market is not separately treated as the transfer of a financial product.

The Dual Regime Explained: APRA & ASIC Roles

ASIC’s Role: Licensing & Consumer Protection

The Australian Securities and Investments Commission (ASIC) serves as the primary conduct and licensing regulator for all SVF providers, regardless of their size. This role positions ASIC at the forefront of consumer protection and market conduct for any business issuing a stablecoin, which is treated as a financial product.

Consequently, providing an SVF is generally classified as a financial service. This typically triggers the requirement to assess eligibility for an Australian Financial Services Licence (AFSL) unless a specific exemption applies.

Holding an AFSL imposes several key obligations on payment service providers under the Corporations Act 2001 (Cth). These are designed to ensure market integrity and protect consumers.

Core duties for licensees include:

• Providing financial services efficiently, honestly, and fairly.
• Maintaining adequate risk management systems and technological resources.
• Establishing an internal dispute resolution (IDR) system.
• Holding membership with the Australian Financial Complaints Authority (AFCA).

A crucial part of ASIC’s consumer protection mandate involves disclosure. Issuers of tokenised SVFs must prepare a Product Disclosure Statement (PDS) that clearly explains the risks and features of the stablecoin.

This document must detail:

• The nature of the backing assets.
• Where the assets are held.
• The redemption process and timeframes.
• Any associated fees.

ASIC has also provided transitional relief, such as ASIC Corporations (Stablecoin Distribution Exemption) Instrument 2025/631. This exempts intermediaries from separate licensing when distributing specific Australian-issued stablecoins, provided the issuer is licensed and makes the PDS available.

APRA’s Role in Prudential Supervision for Major SVFs

While ASIC regulates all SVF providers, the Australian Prudential Regulation Authority (APRA) is responsible for the prudential supervision of large-scale issuers.

APRA’s focus is on maintaining financial stability by ensuring that major players in the payment system can meet their obligations to customers, particularly during times of stress. This oversight is triggered when a provider is classified as a “Major SVF provider.”

Under the Treasury’s Tranche 1a exposure draft legislation from October 2025, this classification applies when the total stored value held by a provider and its related corporate bodies exceeds 200 million Australian dollars (AUD). Once this threshold is crossed, the entity must register with APRA and comply with its prudential standards.

APRA’s prudential supervision for Major SVFs centres on several key areas to mitigate systemic risk. These responsibilities include:

• Setting and enforcing capital requirements to absorb potential losses.
• Overseeing risk management frameworks to address operational, investment, and credit risks.
• Ensuring issuers maintain sufficient high-quality liquid assets to meet all redemption requests on demand.
• Monitoring the operational resilience of the payment system to prevent widespread disruptions.

Importantly, while Major SVF providers are subject to this heightened supervision, they are not regulated as traditional banks or Authorised Deposit-taking Institutions (ADIs). APRA’s approach involves applying modified prudential standards tailored to the specific risks posed by these large-scale payment services.

Key Obligations for Stablecoin Issuers & Services

Meeting APRA Thresholds for Major SVFs

The new regulatory framework establishes a graduated approach to supervision, with APRA overseeing larger entities to manage systemic risk. Prudential oversight is triggered when an SVF provider, including a stablecoin issuer, becomes a “Major SVF provider.”

This designation applies once the total stored value held by the provider and its related corporate entities exceeds a specific monetary threshold.

The threshold for what constitutes a Major SVF has evolved through various consultations, as early proposals and previous regulatory frameworks considered figures around $50 million or $100 million. However, the October 2025 exposure draft legislation, part of the Treasury’s Tranche 1a reforms, has proposed a higher threshold of AUD 200 million.

This increased limit is intended to give smaller, innovative payment service providers more room to grow before being subject to the more intensive prudential standards administered by APRA.

Stablecoin Backing & Reserve Asset Requirements

A central requirement of the new regulation of payment service providers is that any stablecoin classified as a tokenised SVF must be fully backed by high-quality assets. This rule ensures that for every digital asset token issued, the provider holds a corresponding value in reserve to meet redemption requests.

Furthermore, the framework mandates that these reserves must be equal to at least 100% of the total value of all outstanding stablecoin liabilities. To comply with these obligations, issuers must hold specific types of assets, which generally include:

• Cash held in an account with an Australian ADI.
• Short-term, high-quality government securities.

Crucially, these reserve assets must be held in segregated accounts, separate from the company’s own operational funds. This segregation, often managed through a trust structure, is designed to protect customer funds in the event of the issuer’s insolvency.

To ensure transparency and accountability, the framework imposes strict disclosure rules:

• Providers are required to publish a monthly statement on their website detailing their reserve assets and outstanding liabilities.
• Failure to comply or publishing misleading information is a serious offence with proposed civil and criminal penalties, including up to five years of imprisonment for responsible officers.

Ensuring Legal Redemption Rights for Fiat Conversion

The new payment system framework mandates that providers of tokenised SVFs must offer users a clear and legally enforceable right to redeem their stablecoins for fiat currency. This requirement is a core consumer protection measure, ensuring that a stablecoin functions as a reliable store of value and means of payment.

Additionally, the redemption must be offered at a fixed 1:1 ratio, meaning one stablecoin token can be exchanged for one unit of the pegged currency, such as one Australian dollar.

This right to redeem is directly attached to the digital token itself, and it can only be exercised by the person who possesses or controls that token.

Consequently, issuers must be operationally prepared to honour these redemption requests on demand, subject only to lawful and clearly disclosed conditions like anti-money laundering checks. This legal guarantee of convertibility is what distinguishes a regulated payment stablecoin from other, more speculative digital assets.

Conclusion

Australia’s Tranche 1a reforms are integrating stablecoins into the financial system as tokenised SVFs, treating them as a core financial product. This establishes a dual regulatory regime where ASIC handles licensing and consumer protection for all payment service providers, while APRA provides prudential supervision for major providers, ensuring full asset backing and clear redemption rights.

Navigating the regulation of payment service providers under this dual regime requires specialised knowledge. For expert guidance on securing your AFSL and ensuring your stablecoin products and services meet these new standards, contact our financial product lawyers at AFSL House today.

Frequently Asked Questions (FAQ)